Gross receipts test8/8/2023 ![]() ![]() As the TCJA has provided significant changes to the rules related to the gross receipts calculation under IRC §460, taxpayers are advised to re-examine their gross receipts calculations to determine if they may take advantage of the small construction contract exception to percentage-of-completion method reporting for long-term contracts under the TCJA. ![]() Note that a complete analysis of these aggregation rules under pre- and post-TCJA law is beyond the scope of this article. As a result, there’s potentially a larger number of entities and receipts that will need to be aggregated in determining if the $25 million gross receipts test is exceeded. TCJA also affected which entities are required to be aggregated when calculating gross receipts. However, as a result of the TCJA’s passage, until and unless further guidance is issued, gross receipts now also include interest (including tax-exempt interest), dividends, rents, royalties and the amount realized from the sale of a capital or depreciable asset reduced by the taxpayer’s adjusted basis in the asset.ģ. Similar to the pre-TCJA gross receipts test, gross receipts means the total amount of receipts (reduced by returns and allowances), as determined under the taxpayer’s method of accounting, received from all trades or businesses carried on by the taxpayer.Ģ. After the TCJA, Internal Revenue Code (IRC) Section 460 now refers to IRC §448(c) for purposes of determining how to calculate gross receipts.ġ. Under the new tax law, the gross receipts test is slightly more complex. In addition, if there was less than 50 percent ownership in the entity, only a proportionate share of the construction-related receipts was required to be included in the calculation. In general, gross receipts from related entities and commonly controlled entities also were required to be aggregated and included in the gross receipts calculation.Gross receipts specifically excluded, among other items, interest, dividends, rents, royalties or annuities not derived in the ordinary course of a trade or business and receipts from the sale or exchange of capital assets. ![]()
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